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Monday, 26 March 2018
Page: 2072


Senator MOLAN (New South Wales) (12:20): I'd like to remind the Senate of some of the points that I previously covered, very quickly. I spoke about the fact that tax reform fits into a larger economic context and about how this government is achieving that context. I spoke about international moves to lower corporate tax and how that is very important to us. I said that Australia depends for its prosperity, for its job growth, on international investment and that the government's enterprise tax bill will keep us internationally competitive. I reminded the Senate that Labor opposes tax cuts and has told Australian business to expect nothing from a Labor government. I also reminded the Senate that the Labor policies will aggregate to something like $200 billion and that the increase in tax to every Australian will be something in the order of $8,000. What we argue for is equality of opportunity and not some misplaced socialist view of the redistribution of other people's money.

Now I'd like to address some of the bigger issues that go towards business tax reduction. The first one is that Australia can afford the company tax reform. Our business tax reform is fully costed and is reflected in the government's budget forecasts and projections, which show the budget will return to surplus in 2021 and will remain in surplus over the medium term. The budget is forecast to be in surplus by the time the company tax rate is reduced to 27.5 per cent for companies with a turnover below $250 million and is projected to have been in surplus for six years before the company tax rate eventually reduces to 25 per cent for all companies. So Australia can afford its company tax reforms.

Second, company tax reform is not just a handout to the big end of town. As former Treasury secretary Ken Henry said, because high company tax rates reduce investment from overseas and lower the demand for Australian workers, 'in the long run, company tax affecting mobile capital is paid by labour—predominantly geographically immobile unskilled labour'. Recent research in the American Economic Review, the most respected economic journal in the world, examined company tax rates in Germany and found that workers bear about one-half of the total company tax burden. Low-skilled, young and female employees bear a larger share of the company tax burden. So company tax reform is not just a handout for the big end of town.

Third, company tax cuts will increase investment, growth, employment and wages. The IMF, you may be aware, has recently lifted its global growth forecast off the back of the US tax cuts. Billions of dollars in additional capital investment flowed into the US economy within weeks of the company tax cuts passing the US Congress. More than 350 US companies have given wage increases or bonuses to four million workers following the Trump administration's tax cuts. The government's first tranche of tax cuts passed in early 2017, and last year the Australian economy added more than 400,000 new jobs. Wages growth has started to lift, with the most recent national accounts figures showing wages growth of 1.2 per cent over the September quarter and three per cent throughout the year. So company tax cuts will increase government investment, growth, employment and wages.

Fourth, under dividend imputation, business tax cuts will not reduce returns for self-funded retirees. Some have claimed that a lower company tax rate would leave some investors worse off by reducing franking credits under dividend imputation. This is incorrect. A lower company tax rate would be good for investors, including retirees, by boosting future dividends and the future value of their shares. As Self Managed Superannuation Fund Association Chief Executive John Maroney accurately pointed out, a lower company tax rate would result in higher earnings which would then be distributed in higher dividends or used to increase the value of companies over time. So, under dividend imputation, business tax cuts will not reduce returns for self-funded retirees.

Fifth, Australian businesses pay their fair share of tax and deserve tax relief. All Australian businesses are required to pay business tax on their profits and not on their earnings. Commissioner of Taxation at the Australian Taxation Office, Chris Jordan, has dismissed suggestions of widespread tax avoidance by businesses operating in Australia. He told the Senate Economics Legislation Committee:

I have said many times that the majority of large corporates, especially Australian owned companies, pay the right amount of tax in Australia and are open and transparent in their dealings with us.

So Australian businesses pay their fair share of tax and deserve tax relief.

Sixth, even with pre-tax deductions available to Australian businesses and also available overseas, our effective business tax rates are comparable. Data on effective average tax rates collected by the Oxford University Centre for Business Taxation between 2007 and 2017, which takes into account depreciation rates and other international differences in tax bases, shows that Australia's effective average corporate tax rate is now 27th highest of the 33 OECD economies. In relation to the G20, between 2003 and 2017, Australia slipped from fifth to 12th place. Importantly, the most recent update to the Oxford data, in early 2017, was undertaken before the US repealed its corporate alternative minimum tax, cut its headline rate from 35 to 21 per cent and allowed full immediate expensing of short-lived capital investment for five years.

I will close with two quotes from the Leader of the Opposition. On Tuesday, 23 August 2011, in the House of Representatives, he said:

Cutting the company income tax rate increases domestic productivity and domestic investment. More capital means higher productivity and economic growth and leads to more jobs and higher wages.

Secondly, on 30 March 2011, he said: 'Lowering the corporate rate for small businesses, as the Greens propose, creates an artificial incentive for Australian businesses to downsize.' (Time expired)

(Quorum formed)